Not a time to be a buy-to-let landlord

cells

mwpt wrote: »

No, that is mostly untrue. Shares exist so that companies can use the equity for investment and growth. In order to obtain the equity they must offer a reward (dividend mostly, or potential for capital growth). These companies produce goods and services that enrich our lives (mostly, I don't want to get into semantics about tobacco or weapons). This is the productive capitalist economy at work.



Your view is skewed. A borrow to let landlord commandeers a scarce resource through debt and then rents it back to the labourers you're talking about.

EDIT: I haven't been around this forum long enough to know, but it feels like I'm being trolled.

Shares in businesses are scarce too in that most companies don't issue a lot more of them.

So £100k invested in a BTL is no worse than say £100k invested in a share (especially if that share is a property company like a few bug FTSE companies like British land are)

mwpt

cells wrote: »

Shares in businesses are scarce too in that most companies don't issue a lot more of them.

So £100k invested in a BTL is no worse than say £100k invested in a share (especially if that share is a property company like a few bug FTSE companies like British land are)

What rubbish.

cells

mwpt wrote: »

What rubbish.

Why?

Homes are finite
So are businesses

How is buying a portion of British land better or worse than buying an office to rent out directly? How is buying a portion of land securities better or worse than buying a retail shop to let out directly. How is buying a portion of grainer plc better or worse than buying a home to let put directly.

Garethgrew

Housing supply is expanding faster than demand.

There not lots of homeless people Therefore supply and demand meet at the moment, yet there are more properties being added to supply that population growth

buglawton

On Planet Zog maybe.

Meanwhile in other news, today the BBC site reports that Carney the BOE Guvner, is very worried about the BTL market and the "Bank would take action" ... "the problem was that investors might sell their properties at the same time if house prices fell".

This could be a case of Carney making his prophecy a self-fulfilling one!

westernpromise

Electrum wrote: »

The Telegraph gets it too. They ran an article this week looking at a higher-rate taxpayer with a £240,000 mortgage on a £300,000 property. He has a five-year interest-only fixed rate mortgage at 3.99%. That costs him £800 a month. He then gets in £1,000 in rental income giving him a current annual profit of £1,440. However, that isn’t going to last long.

Assuming his rental income doesn’t rise very significantly, his profit falls to £0 in 2019 and becomes a loss of £480 in 2020. There is a calculator for all this on the Telegraph’s site.

A large part of the UK population still doesn’t seem to think it matters. A YouGov/Brewin Dolphin survey suggests that the vast majority still think that buy to let is a great investment – particularly for retirees. Maybe they’re right. Maybe rents will rise super-fast from here as wages begin to rise. Or maybe capital gains will be such that no one much cares about cash flow – if you are making 20% a year on a house perhaps you can just keep borrowing against that house to cover your cash flow issues? But we aren’t so sure.

Not many people are brave enough to lose money on an investment in cash terms every month. And rising housing supply in the UK (note that 75% of developers think it is getting easier to get planning permission here) suggests to us that at some point capital gains will disappoint. Getting into buy-to-let now – with borrowed money – seems like a risk that really isn’t worth taking.

http://moneyweek.com/merryns-blog/buy-to-let-dont-do-it/

When prices start to fall a little, they will avalanche as the savvy investors start heading for the exits as soon as they realise that the govt can't afford to backstop their 'business' any further.

A higher rate taxpayer whose mortgage is £8,000 a year against rental income of only £10,000 is well inside loss-making territory already.

Unless he likes renting to people he hasn't checked out, he's going to be paying a letting agent to find and vet tenants; in London this is typically 8 to 10% of the rent plus VAT. So that's £1,000 of his £2,000 gone.

Then he has to fund maintenance, repair and insurance of the buildings (or the service charges, if it's a flat); say another (very conservative) £500 a year for that. Then there's maintenance of the interior: annual gas safety check, boiler service, etc. Even if nothing goes wrong, that's another £500 or so at least. Then there's redecoration between tenancies, replacement of appliances, carpets and other wearing items.

If he does these for himself he can avoid a cash cost, but only if he imputes nil value to his own time. He will also get less rent and more frequent voids in the first place if repairs are carried out at an amateur's convenience and to an amateur standard rather than promptly by a professional tradesman at the tenants' convenience.

Factor all that in, and anyone leveraged up like that is making a substantial loss already. The profit opportunity can only be from capital gains, but of course there are costs involved in realising those too.

I've got a 28% LTV BTL mortgage at BoE plus 0.79% forever. Even on a million pound London property, it still only brings in about £10k a year after tax, which was a stonking return on equity at half the price, but is simply OK now. Why anyone would bother for less I can't think; £10k isn't a life-changing amount of money. I certainly wouldn't pay for the opportunity of betting on price rises, which is what any cashflow-negative landlord is doing. I'd use that money to improve my own house, which gives me a guaranteed (non cash) yield.

westernpromise

Graham_Devon wrote: »

As I keep saying, if it's so easy to charge more in rent, why are BTL's not doing it already?

That doesn’t really work, though, Graham. If it were the case that the market goes straight to the maximum level tenants can afford, then logically, there could never have been any price rises in the past, either; the rent was already as high as possible.

Instead, when circumstances changed, so did rental values. If (absurdly) BTL landlords torched 90% of their houses, clearly rents for the rest would go up. There are just as many people needing shelter as before but there’s less shelter. So those without would increase their bids beyond what current tenants are paying. In a market with 90% fewer rentable properties tenants will find they can afford more.

There won’t be 90% fewer rentable properties from here on, but there will be fewer, and the supply will fall by more than the demand. OO property is less densely occupied, so selling a BTL house with 3 people in it will only turn 2 tenants into OOs. The third is still a tenant and still needs to rent. He’ll squeeze into whatever’s left.

So your bread analogy, which I liked, is very good; landlords will split houses in two, and let each half for 75% of what the whole house used to let for (insert your own numbers).

Osborne’s changes have made entry to this market uneconomic, and in some marginal cases have made staying in it uneconomic as well. Underleveraged landlords, however, now control something in steadily shortening supply.

BananaRepublic

Garethgrew wrote: »

Housing supply is expanding faster than demand.

There not lots of homeless people Therefore supply and demand meet at the moment, yet there are more properties being added to supply that population growth

The number of homes built each year is not even enough to satisfy immigration never mind demand due to other causes.

There is an acute shortage of housing especially in the south. BTL landlords compete with other people, pushing up prices, making homes even more unaffordable. Remove them or reduce the gains, and housing becomes cheaper. BTL is an investment not a business. Many BLT landlords probably end up paying vey little tax, how can that be fair.

AG47

Graham_Devon wrote: »

As I keep saying, if it's so easy to charge more in rent, why are BTL's not doing it already?

don't.

Answer, they are at breaking point, any higher and mass defaults.

Some places sit vacant for long times now until they lower the asking rents, even then tenants struggle to pay without government assistance which is going to be reduced in years to come, rents will have to fall inline with the reductions

wotsthat

mwpt wrote: »

No, that is mostly untrue. Shares exist so that companies can use the equity for investment and growth. In order to obtain the equity they must offer a reward (dividend mostly, or potential for capital growth). These companies produce goods and services that enrich our lives (mostly, I don't want to get into semantics about tobacco or weapons). This is the productive capitalist economy at work.

If you want to employ capital and 'farm' the labour of your tenants it's not much different to employing the capital by buying shares and farming the labour of the employees. I've got shares in BT - good luck finding me up a telegraph pole.

Companies don't exist to enrich our lives - their sole aim is to make a return for the owners by supplying goods and services people want to buy.

The only difference is the tenuous 'houses are different' moral argument clumsily applied.